LH already reacted with two moves:
- introducing a new fare structure for domestic flights, starting at 88 EUR rtn incl tax.
- founding germanwings which is owned 100% by eurowings which is 24.9% (planned: 49%) owned by LH.
Furthermore, I agree that the low cost carriers serve a whole different clientele.
Another point about competition for LH, especially on domestic routes: German Rail. Other than the mother countries of low cost airlines (US, UK, Ireland), Germany has a fast, efficient rail system with competetive prices.
This, and another aspect on which I´m going to comment in a moment, make the German market completely different from the UK and Irish ones.
That other aspect is geographic location. Great Britain and Ireland are both, surprisingly, islands. A German can hop into his car and drive to Paris, Milan or Vienna, a Briton or Irishman can´t. And if the German fills his car with a family of four, the cost is unbeatable. After all, low cost carriers are not as low cost as they want to make us believe.
All in all, from my point of view LH is very much prepared for the low cost carriers´ attacks. Keep in mind they survived numerous attemps (German Wings, Aero Lloyd, eurowings/Air France, Deutsche BA) in the late 80s/early 90s. 10, 15 years and a privatisation later, LH have sorted out their economic troubles and especially streamlined their operation. Compared to 10, 15 years ago, they´re lean and mean